Electricity's uncertain future

As the debate over the Government's carbon tax intensifies, the future of Australia's electricity industry becomes more unclear.

Transcript

LEIGH SALES, PRESENTER: Thanks, Chris. The Gillard Government is trying to tackle the Opposition's scare campaign on carbon tax head on by releasing Treasury estimates about the tax's economic impact

In a speech in Canberra today the treasurer, Wayne Swan, said the figures prove the carbon tax will have a negligible effect on wages, growth and employment.

Uncertainty around the politics of the issue is prompting warnings of a dire impact on the electricity sector.

As Greg Hoy reports, some industry players say get ready for power shortages and widespread blackouts.

PRO CARBON TAX RALLY ORGANISER: As we speak here there's rallies going around in each state and territory of Australia.

CROWD: Yeah!

GREG HOY, REPORTER: Fact or fiction?

Heat is rising in the carbon debate, prompting dire warnings that with growing investment uncertainty, rising demand for electricity will outgrow the security of supply, threatening widespread brown or black outs.

MIKE HARROWELL, MARKET ANALYST, BBY: We are likely to be running into a shortage of capacity some time within the next five years. Where you will see the problems are during peak loadings, and that will just mean that we will have less reliable electricity than we would normally want.

GREG HOY: It's a view heavily promoted by the carbon-exposed coal fired power industry, which generates the vast majority of the nation's electricity.

RICHARD MCINDOE, TRUENERGY: I think there's going to be real challenges during the peak times.

GREG HOY: The head of Australia's largest private electricity utility, International Power, agrees.

TONY CONCANNON, EXECUTIVE DIRECTOR, INTERNATIONAL POWER (ABC Radio, 26 May, 2011): It has taken almost 50 years to build that infrastructure. You can't just close your eyes and wish for that all to change.

RICHARD MCINDOE: We are not seeing a great deal of investment in- whether it's a base load supply or peak supply now, because of this uncertainty.

GREG HOY: But some in the industry say the situation is no way near so dire, given sound investment over the past decade.

CARL MCCAMISH, ORIGIN ENERGY: There has been more than 10,000 megawatts of new generation in the market, which is between 20 and 25 per cent of the total existing capacity.

So that's a pretty high replacement rate. You'd say that that's quite a lot of investment for a market of our size over that period of time. And right up, even through today you've got a lot of investment going on in wind and the solar and you are seeing investment in the peaker plants.

CARL MCCAMISH: It's not a question of power shortages. Power shortages only happen if you've got not enough capacity in the system. In the peaker plants, the smaller plants that can ramp up and down quickly at times of peak demand - they're the ones, as I say, that we've been investing in and the market is projecting to invest in as well. They will cover the issue of the lights going off. (Laughs)

GREG HOY: But coal fired power producers have much to lose and much to gain from this debate, especially the biggest and dirtiest of all - the brown coal fired Hazelwood plant in Victoria. It pumps 8 per cent of electricity into the national grid and 3 per cent of the emissions into the atmosphere. Its future under the carbon cloud, Hazelwood's local management International Power wouldn't talk to 7:30.

GREG HOY: But the company's Australian subsidiary is seeking compensation from Government if a carbon price is imposed, claiming this would breach a Government approval in 2005, extending the licence to operate the controversial Hazelwood power plant.

TONY CONCANNON (ABC Radio, 26 May): As a result of that approval we then invested another half a billion dollars into that asset, based on that. So what we are talking about is we cannot deal with chopping and changing of policy, it's called sovereign risk.

GREG HOY: But is it really sovereign risk when a public statement announcing the Government approval of the time specifically mentioned carbon emissions?

"A future greenhouse gas emissions trading scheme will still apply to Hazelwood power station and could place obligations on Hazelwood's owners additional to requirements of the deed."

TONY WOOD, ENERGY DIRECTOR, GRATTAN INSTITUTE: Everyone in industry knows that major companies for quite some time have been factoring in a price on carbon to their major investment decisions.

GREG HOY: For how long?

TONY WOOD: I would suggest at least 10 years.

GREG HOY: The Grattan Institute's energy director Tony Wood spent 11 years as an executive in the power industry and three as director of the Clinton Foundation's clean energy program.

TONY WOOD: If you are an asset owner, you don't like change. We may see black coal generators running more than brown coal generators. We may see gas generators running more than coal generators. But it will be different.

GREG HOY: The problem is Australia's reliance on emissions-intensive coal power is rising, as are global carbon concerns.

At business forums here and overseas there is talk of inevitable investment changes ahead.

JEREMY BENTHAN, VICE PRESIDENT, SHELL GLOBAL BUSINESS: The stresses in the energy and other related systems are real and are building, and inevitably will force transition.

GRANT ANDERSON, PARTNER, ALLENS ARTHUR ROBINSON: I think the expectation in industry is that at some stage - it may not be immediately - there will be a carbon price on carbon, so industry does plan for that in the longer term.

TONY WOOD: Companies around the world who can see the future first and get there first are the ones who are going to capitalise.

GREG HOY: The suggestion is energy companies with the most flexible and cleanest fuel sources are the best investment in the brave new carbon conscious world.

JEREMY BENTHAN: The biggest, fastest, most reliable way to start addressing this now is through gas. Gas fired power stations emit less than half the CO2 of a coal fired power station.

GREG HOY: But coal is cheaper, so to reduce reliance on it will require a carbon price. The proposed price of $20 to $25 a tonne will make black coal power plants more productive than messier brown coal powered plants like Hazelwood, but greater investment in gas will require a bigger carbon price again.

CARL MCCAMISH: If you do want to create the significant change that comes with moving to more gas base load, then you are looking at prices that are above $20 to $25. You are looking at $35 and above.

GREG HOY: Which would of course mean a politicians' picnic, but would it mean the end of the world as we know it?

Are the days of cheap power in Australia past?

TONY WOOD: Relative to cost of living, our energy prices are going to stay relatively low. So I don't think this is a fundamental risk to our standard of life.

CARL MCCAMISH: Australian electricity price, even today after significant increases recently, are at the average- the price they were as a proportion of average Australian household income about 40 years ago.

There will be pressure upward on fuel price, but seen in an overall context, and compared to other countries, Australia will remain a low to average cost country for electricity.